CHAPTER 5

1. CHAPTER 5 Agency

2. INTRODUCTION This chapter explains the law of agency relationships between employers and employees, and of agency relationships with independent contractors. It also elaborates on the liability that can be created by such relationships.

3. FORMATION OF AN AGENCY RELATIONSHIP Two parties consensually agree to form a relationship in which one party agrees to act on behalf of the other party. • Implied By Conduct. • Agency by Ratification of Principal. • Agency By Estoppel.

4. TYPES OF AGENCY RELATIONSHIPS • Employer-Employee – the employer has the right to control the conduct of the employee. Also referred to as the master-servant relationship. • Independent Contractor – the independent contractor’s conduct is not fully controlled by the person paying for the services. The independent contractor may or may not be an agent.

5. DISTINGUISHING BETWEEN EMPLOYEES AND INDEPENDENT CONTRACTORS • Employer’s control over details of work. • Distinction between occupation of independent contractor and employer. • Level of supervision. • Degree of skill required. • Provision of tools and work space. • Length of time worker is engaged. • Method of payment.

6. FIDUCIARY DUTY • Agent Owes Fiduciary Duty to Principal – the agent agrees to act on behalf of the principal. • Duty of Loyalty – an agent has a duty to act solely for the benefit of his or her principal in all matters directly related with the agency undertaking. • Duty of Care – the agent has a duty to act with care, including a duty to avoid mistakes, whether through negligence, recklessness, or intentional misconduct.

7. FIDUCIARY DUTY Case 5.1 Synopsis. Scranton Gillette Comm. v. Dannhausen,(IL 1999). Eugene H. McCormick was vice president of Scranton Gillette Communications and publisher of Greenhouse Product News. While still the publisher of Greenhouse Product News and advocating for its redesign, McCormick was making plans to resign and to launch his own rival greenhouse publication. Not only did he not disclose this information to his employer, he also tried to persuade several other employees to come work with him on his new venture. One of these employees was Laurie Dlugos, who worked in sales. Scranton sued McCormick and Dlugos for breach of fiduciary duty. ISSUE: Is an employee liable for breach of fiduciary duty if he works on a competing business venture without disclosing it to his current employer? HELD: For Plaintiff, McCormick and Dlugos violated their fiduciary duties.

8. FIDUCIARY DUTY Case 5.2 Synopsis. Northeast General Corp. v. Wellington Advertising, Inc., (N.Y. 1993). Northeast General, through its agents, entered into an agreement with Wellington Advertising relating to the sale of Wellington Advertising. Northeast was to act as a nonexclusive, independent banker and consultant for the purposes of finding buyers for Wellington. In return, Northeast would get a finder’s fee if the deal was completed within three years. ISSUE: Does this relationship create a fiduciary relationship thus obligating Northeast to divulge information about the bad reputation of a potential buyer? HELD: No. Judgment for Wellington reversed and Wellington ordered to pay finder’s fee to Northeast. The court said it did not, but the dissent thought that an agency was created.

9. AGENT’S ABILITY TO BIND THE PRINCIPAL TO CONTRACTS ENTERED INTO BY THE AGENT. • Actual Authority– principal gives consent for the agent to act for and bind the principal. Cconsent is express or implied. • Apparent Authority – when a third party reasonably believes the agent has authority to act for and bind the principal. • Ratification – principal is bound to an agent’s unauthorized acts by affirmation of the prior acts. Express or implied. • Undisclosed Principal – if a third party does not know the agent is acting for a principal, the principal will nonetheless be bound by any contract the agent enters into with actual authority.

10. AGENT’S ABILITY TO BIND THE PRINCIPAL TO CONTRACTS ENTERED INTO BY THE AGENT. Case 5.3 Synopsis.Pohl v. United Airlines, Inc. (7th Cir. 2000). Michael Pohl, an aircraft inspector for United Airlines, sued United for alleged violations of the Uniformed Services Employment and Reemployment Rights Act. He alleged discrimination based on his military status, retaliation, and failure to properly credit his employee stock ownership account. The case settled through Pohl’s attorney but Pohl refused to sign and he appealed. ISSUE: Under what circumstances does an attorney have the authority to enter into a settlement agreement on behalf of his client? HELD: For United because Pohl’s attorney had actual authority to settle the case on his behalf.

11. LIABILITY FOR TORTS OF AGENTS Scope of Employment (Respondeat Superior). Employer may be vicariously liable under respondeat superior if Employee committed tort within the course and scope of employment.   • Did Employee have Employer’s authorization to act? • To what extent were the Employer’s interests advanced? • Did the Employer provide the instrumentality that caused the injury? • Did the Employer have knowledge that the Employee would perform the act?

12. LIABILITY FOR TORTS OF AGENTS Case 5.4 Synopsis. Riley v. Standard Oil (N.Y. 1921). Riley was hit by a Standard Oil truck driven by Million and severely injured. Million was instructed to drive the truck from a mill to a freight yard and back. On the way back, Million detoured to his sister’s house, which was about four blocks out of the way. ISSUE: Was Million acting as an agent at the time of the accident? HELD: For Plaintiff, the court ruled that he was acting within the scope of his duty, so Standard Oil was liable for his actions.

13. LIABILITY FOR TORTS OF AGENTS • View from Cyberspace: Intelligent Agents and Click-Wrap Agreements. • Liability for Torts of Employees Acting Outside theScope of Employment. The employer will be liable if: • It intended the employee's conduct or its consequences; • The employee's high rank in the company makes her the employer's alter ego; • The employee’s action can be attributable to the employer’s own negligence or recklessness; • The employee uses apparent authority to act or to speak on behalf of the employer and there was reliance upon apparent authority; or • The employee was aided in accomplishing the tort by the existence of the agency relationship.

14. LIABILITY FOR TORTS OF AGENTS Case 5.5 Synopsis.Burlington Industries, Inc. v. Ellerth, 524 U.S. 742 (1998). Kimberly Ellerth worked as a salesperson at Burlington Industries, where she was subjected to sexual harassment by her supervisor, Ted Slowik. Slowik had authority to make hiring and promotion decisions subject to the approval of his supervisor. When Ellerth was being considered for a promotion, Slowik expressed reservations during an interview with her because she was not “loose enough.” Burlington had a policy against sexual harassment, but Ellerth did not inform any authority about Slowik’s conduct. Ellerth quit her job, then sued Burlington for sexual harassment and constructive discharge. The complaint was dismissed on the grounds that Burlington neither knew nor should have known about Slowik’s conduct. The appeals court reversed, and Burlington appealed. Continued -

15. LIABILITY FOR TORTS OF AGENTS Case 5.5 Synopsis. (continued) Burlington Industries, Inc. v. Ellerth, 524 U.S. 742 (1998). ISSUE: Is an employer vicariously liability for a supervisor’s creation of a hostile work environment when the employer neither knew nor should have known of the harassment? HELD: For Ellerth. Burlington was liable for the supervisor’s harassment and could not take advantage of the possible affirmative defense because it did not have adequate policies in place to prevent sexual harassment. Burlington had no written policy prohibiting harassment and provided employees no process whereby they could complain to someone other than the immediate supervisor.

16. LIABILITY OF THE PRINCIPAL FOR VIOLATIONS OF LAW BY THE AGENT A company may be liable even when the employee is told not to violate the law. Case 5.6 Synopsis. Jones v. Federated Financial Reserve Corp., 144 F.3d 961 (6th Cir. 1998). Karen Jones was married briefly to Randy Lind. Due to fear of his harassment, she refused to give him her new address or phone number. Lind obtained his ex-wife’s address from his friend Janice Caylor, who had obtained this information through her employer Federated Financial Reserve Corporation. Federated. It obtained approximately 25,000 credit reports annually through its on-line credit report request system. TRW supplies the credit reports to Federated, which certifies that it will use the reports only for specified permissible business purposes. ISSUE: May an employer be liable under the Fair Credit Reporting Act for its employee’s actions under a theory of apparent authority? HELD: Perhaps. Case remanded for a new trial to determine whether the Employer may be liable for negligence or willful violation of the Fair Credit Reporting Act.

17. THE RESPONSIBLE MANAGER: WORKING WITH AGENTS A manager has a duty to act solely for the benefit of his or her employer in all matters related to its business. This duty includes an obligation to notify the employer of all relevant facts- all that the agent knows, the principal should know.

18. REVIEW 1. Which is the superior type of agency authority, and why? 2. Adams has had Baker working for her for over six months. One day, tremendous damage is caused and lives are lost due to Baker’s actions. It has always been unclear what relationship Adams and Baker had. Given these events, what relationship will each probably now claim and why? 3. When would a party ratify another person’s actions and make him or her an agent?